Question

+ Homework Chapter 14 Question 1 of 5 < > -/1 View Policies Current Attempt in Progress Buffalo Company sells 8% bonds having a maturity value of $2,840,000 for $2,624,680. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. Determine the effective-interest rate. (Round answer to O decimal places, e.g. 18%.) The effective-interest rate % e Textbook and Media Assistance Used Set up a schedule of interest expense and discount amortization under the effective interest method. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 38,548.) Schedule of Discount Amortization Effective-Interest Method Interest Discount Expense Amortized Interest Payable Carrying Amount of B Year Jan 1. $ $ $

Answer 1

Effective interest rate = 10%

	Amount	PV Factor @10%	PV
Interest Payment	$        227,200	3.79079	$         861,267
Maturity Value	$     2,840,000	0.62092	$      1,763,413
Bond Price			$     2,624,680

Year	Interest Payable	Interest Expense	Discount Amortized	Carrying Amount of Bonds
Jan. 1, 2020				$     2,624,680
Jan. 1, 2021	$          227,200	$       262,468	$          35,268	$     2,659,948
Jan. 1, 2022	$          227,200	$       265,995	$          38,795	$     2,698,743
Jan. 1, 2023	$          227,200	$       269,874	$          42,674	$     2,741,417
Jan. 1, 2024	$          227,200	$       274,142	$          46,942	$     2,788,359
Jan. 1, 2025	$          227,200	$       278,841	$          51,641	$     2,840,000

If you have any query, kindly comment with your query and please mark thumbs up.